So you’ve found your next real estate deal, and now you need financing. Whether you’ve been utilizing a diverse capital stack for years, or you’ve always relied on one type of funding for your investment property loan, understanding the financing options available is key to reaching your business goals and success.
What is a Hard Money Lender?
Fund That Flip is considered a direct, hard money lender. Hard money lenders are funded by private lenders. Also being a direct lender the capital is first coming directly from us. We pre-fund the real estate loans for our borrowers, then give private lenders the opportunity to invest in fractional shares of those loans to earn income passively.
Hard money loans are backed by an actual asset, such as a real estate property, rather than the financial position of the applicant, which means the loans are generally short-term, possibly up to 24 months. A short-term vs. long-term loan can also affect the terms of the loan, such as the interest rate and the loan-to-cost (LTC) ratio (or the amount you’ll be expected to contribute as a down payment), but generally, these terms can be negotiated.
Diversify Your Capital
According to modern investing theories, having a diverse capital stack to finance your deals is optimal. For example, a direct lender like Fund That Flip will only finance a portion of a property’s purchase price. It’s up to the borrower to get the financing for the remaining amount — they can use their own money, a bank loan, or a private money loan to completely finance the deal.
How to Choose a Hard Money Lender
The most important thing to keep in mind when looking for a hard money lender is YOUR business goals — because what the hard money lender is offering should align with what you’re trying to accomplish with your business.
There are a lot of hard money lenders so you’re going to have to shop around for your investment property loans.
Some questions to ask potential hard money lenders — or answers to look for:
How much does this capital cost? What’s the rate?
Obviously, an important consideration is cost, but it shouldn’t be the ONLY thing you base your decision on. Overall risk and offsetting factors will affect your rate. You want a rate that’s sustainable and won’t cut too much in your profitability, but remember the old adage: You get what you pay for.
What are the loan qualifications?
If a hard money lender has written loan qualifications it’s worth reading them to save yourself and the lender some time. For banks, loan qualifications are very strict. For hard money lenders, they’re usually a bit more flexible if you don’t exactly meet the credit score or experience requirements. At Fund That Flip, we believe a handshake will always outperform an algorithm.
What are YOU looking for in a loan?
Again, don’t forget your business goals. A hard money lender can general optimize a loan to meet certain needs, so have these discussions with your lender. For example, Fund That Flip can optimize a loan’s structure for lowest rate, top leverage, and loan amount — or we could optimize for speed-to-close by expediting underwriting or foregoing the need for a precise appraisal.
What does the hard money lender want to know about YOU?
This is a key consideration that should align with your business goals. A hard money lender will want to know about your experience and the deal you’re trying to get financed right now, but they should also want to know about your business goals. Is this a side hustle? Are you trying to scale? What types of deals do you typically invest in — beyond the one you’re talking about at present. A great lender relationship will benefit you and your business for the long term, not just until the next deal.
What information does the lender need to get you funded?
If you’ve been dealing with private money lenders, the information and paperwork needed for a hard money loan is a little different. But don’t get frustrated! A good hard money lender will guide you through the process and explain to you what they need.
How quickly will you be approved for funding?
If you apply for funding online with a hard money lender, the next step is the lender getting in touch with you. The longer it takes for you and the lender to connect, the longer it’s going to take to get pre-approved for capital. Look for a hard money lender that’s moving at the same speed as you — and watch your phone for unknown numbers. There’s a good chance it’s your new lender calling.
How quickly can they close on the property?
Hard money lenders don’t have the same requirements as banks or traditional mortgage lenders, so they can close much faster (a bank typically takes 30 – 45 days to close on a property, and in real estate, time is money). Of course, this depends on having those initial conversations and providing the right info to the lender. For example, Fund That Flip can close on a property in as little as 5–7 days.
What is their reputation, and how long have they been in business?
Google and Facebook both allow people to rate and review companies, including hard money lenders, so this is a great place to see what other real estate entrepreneurs who have already worked with the lender have to say. If a lender’s Facebook page doesn’t have reviews on it, proceed with caution. Companies can turn off reviews, which they often do if they’re overwhelmingly negative (but it could also be if they’re getting spammed).
Also look on social media platforms such as Instagram and Twitter to see how people engage with the lender. Looking in the comments of individual posts will give you a good idea of what other real estate entrepreneurs think about the lender.
A hard money lender should tell you how long they’ve been in business on their website, along with key facts like the number and amount of loans they’ve originated, principal repaid, etc.
Does the hard money lender employ real estate professionals?
There are no required approvals or merits from any federal or state regulating bodies such as the SEC to be a hard money lender, but real estate agents, brokers, and lawyers are regulated by every state. This is just a good signal of trust for working with a hard money lender because those employees are not likely to take actions that would jeopardize their licenses, and thus, enter into a bad deal.
Does the hard money lender operate in your area?
Understanding the local real estate market is key to getting a hard money loan, that’s why Fund That Flip has local territory managers throughout the U.S. We want to have personal, in-depth knowledge of the markets our clients are working in. However, a hard money lender unfamiliar with your market might slow things down or structure your loan in a way that’s not conducive to the market you’re in.
Comparing Hard Money Lenders
This is just a quick example of rates, LTC, LTV, and other metrics across some leading real estate lenders, specifically for their bridge loan products. All information was taken directly from the lenders’ websites and is accurate as of April 28, 2022.
| Lender | Capital Cost | LTC | LTV | Rehab Budget | Loan Size | Commit to Loan | Speed to Close |
| Upright | Starting at 7.49% | Up to 90% | Up to 75% | Up to 100% | $100K–$5M | Within 24 hours | 5–7 days |
| Kiavi | Starting at 6.5% | Up to 90% | Up to 75% | Up to 100% | $50K–$3M | Unknown | As few as 10 days |
| LimaOne | Starting 7.99% | Up to 92.5% | Up to 75% | Up to 90% | $75K–$3M | Less than 10 days | 7–10 days |
LTC or Loan-to-Cost is the amount of the loan from the lender, compared to the cost of the property. So if LTC is 90%, the lender will provide a loan that covers 90% of the cost, and the borrower is responsible for the remaining 10% of the cost.
LTV or Loan to Value is the loan amount from the lender compared to the value of the property. This is a way lenders assess risk. As LTV increases, so does the potential loss for the lender if the borrower defaults on the loan, which creates more risk.
Call Fund That Flip today at 646-895-6090 to get a loan commitment on your next deal within 24 hours. Or click below!
